If you work in the construction industry, you're probably aware of changes to reverse charge VAT. But did you know four new measures affecting the construction industry scheme (CIS) were enacted earlier this month?
Under the CIS, contractors have to register for the scheme and are obliged to deduct money from a subcontractor's payments and pass it onto HMRC. This counts as advance payments towards the subcontractor's income tax and National Insurance contributions.
For many contractors and subcontractors operating under the CIS, the latest changes have slipped under the radar, certainly in comparison to the more-publicised reverse charge.
HMRC insists they have been brought in to crack down on tackling CIS abuse, specifically, labour fraud. An obvious example is where a contractor pays casual workers cash-in-hand.
The following rule changes kicked in from 6 April 2021, following a lengthy consultation last year, with the Treasury expected to net an extra £15 million a year from 2022/23.
Set-off amendment power
First, the tax authority can now amend the CIS deductions suffered and reclaimed on real-time information via the employment payment summary to an amount matching any evidence HMRC holds.
If there is no evidence or a construction firm is not entitled to set-off in this way, HMRC could remove the claim completely and prevent a company from submitting another set-off claim for the rest of a tax year.
Being on the wrong side of this change could cause significant cashflow disruption and detailed records should be kept to support any set-off claims.
Cost of materials
The second change is aimed at subcontractors who claim the cost of materials on a project, and avoid a CIS deduction on this amount as a result.
It is only where a subcontractor directly incurs the cost of materials bought to fulfil a particular building contract that the cost in question is not subject to a CIS deduction.
Under CIS rules, contractors must ascertain both how much was spent and that it represents the direct cost to that subcontractor for the contract.
The third change updates the rules for operating CIS as a deemed contractor.
Businesses operating outside the construction sector need to apply the CIS when the total spending on construction operations exceeds £3 million over the past 12 rolling months.
Previously, a business only had to operate under the CIS if its average expenditure on construction operations exceeded £1m over the last three tax years.
Last but not least, HMRC has expanded the scope for imposing a penalty for supplying false information on payment applications under deduction or gross payment status.
The person or business to whom the registration applied could be penalised before last month, but now this also applies to anyone who exercises influence or control over a person registering for the CIS and either encourages that person to make a false statement or does so themselves.
Speak to us about the CIS.